Africa remains a region with enormous potential for private investors despite economic headwinds and reduced liquidity that are creating challenges in managing risks and mobilizing partners around investments, according to a report released today by IFC, a member of the World Bank Group, in partnership with the Africa CEO Forum. It concludes that even in difficult economic and risk environments, methods of financing that better mitigate risk can be more widely adopted to fund successful investments on a larger scale in Africa.
The report, New Horizons in African Finance: Reducing Risk and Mobilizing Financing on New Scale, finds that enduring trends of rapid urbanization, increasing stability, a young and growing population, expanding internet connectivity, rising incomes, and shifting consumption patterns continue to create an abundance of commercial opportunities across the continent. Investment opportunities are strongest in sectors like clothing, communications, energy, financial services, food, health, housing and transport. Meanwhile, while Africa could absorb $90 billion in infrastructure spending each year, only about half that amount is being invested. And the continent requires $5-10 billion annually to adapt to climate change, including private investment.
Jingdong Hua, IFC Vice President and Treasurer, said, “We need to learn from recent projects that are bringing together development finance institutions with private commercial banks and other financiers, along with public and donor support. Successful funding approaches need to be expanded upon to reduce risk, mobilize funds, and build local capital markets to meet the enormous opportunities presented by the ongoing transition in Africa.”
Projects highlighted in the report demonstrate how innovative structuring and approaches can mitigate risks and crowd in institutional investors to allow for a higher probability of success. The approaches include public-private partnerships, co-financing, blended finance, local capital markets and tailored solutions, and private equity.
Amir Ben Yahmed, Founder and President of the Africa CEO Forum, said, “Our annual gathering of business and government leaders from around Africa is demonstrating the continued interest in private investment on this continent. Investors are looking for new approaches for dealing with changing market conditions, and this report offers ideas and solutions for investors to consider and act upon.”
Successful examples of recently financed projects come from across the African region, with details of project structures and risk mitigation tools highlighted in the report. They include the Azito 3 power project in Cote d’Ivoire; an Ecobank Transnational SME lending program in West African conflict-affected and fragile states; a Cargill-SIB partnership to support agricultural coops, also in Cote d’Ivoire; A local currency bond issue by Bayport Financial Services in Zambia; Bridge International Academies’ funding for expansion in Kenya and other African countries; Africa Improved Food Holdings’ nutritious food production project in Rwanda; a large regional private equity fund raised by Helios Investment Partners; and a restructuring and privatization of Eleme Petrochemicals in Nigeria.